Theranos founder Elizabeth Holmes, fighting a $900 million restitution demand, claims her crimes were not proven to have caused her blood testing startup’s collapse, and her deceptions did not generate all the money investors poured into her firm.
Federal prosecutors last month filed a motion asking Judge Edward Davila to order Holmes, convicted in January 2022 of four counts of defrauding investors in her now-defunct Palo Alto startup, to pay $878 million in restitution. Davila sentenced Holmes in November to more than 11 years in prison, ordering her to start imprisonment April 27, a date she is battling to extend until her appeal concludes.
Holmes in a filing Friday in U.S. District Court in San Jose noted that Davila ruled in a January order that prosecutors had not established that Theranos collapsed because of Holmes’ criminal conduct. Holmes further claimed that the prosecution had not “shown that the investor-victims it identifies relied on the offense conduct when deciding to invest.”
Davila, Holmes argued, “should decline to order restitution.”
Davila’s order pegged investor losses from Holmes’ criminal conduct at $381 million, but prosecutors noted that legally, the loss amount for restitution is calculated under a different standard than for sentencing. The prosecution cited legal precedents for restitution amounting to the entirety of fraud victims’ investments, and argued that Holmes should pay the entire $878 million in losses among investors “directly harmed” by Holmes’ “criminal conduct in the course of the scheme.”
Holmes’ ability to pay restitution remains in question. In a court filing last month, she said she “continues to work on ideas for patents.” However, in the same filing Holmes said she “has essentially no assets of meaningful value.”
A restitution hearing for Holmes is set for March 17. After that, Davila will weigh both sides’ arguments, evaluate submissions by Holmes’ fraud victims concerning what they believe they’re owed, and will issue an order specifying how much she must pay to which investors, money that will be distributed to each in proportion to their loss, said criminal defense lawyer Carrie Cohen, who follows the Holmes case from New York. The restitution can come from any assets Holmes is found to own, and from a percentage of any future earnings.
Federal investigators will have searched for any money or assets belonging to Holmes, and anything they may have turned up would be used to pay back investors, Cohen said.
“You can’t get blood from a stone,” Cohen said. “If in fact she actually has no assets and no income, then you look to future income.”
Whether Holmes, who is barred by a Securities and Exchange Commission settlement from serving as an officer or director of a public company until 2028, will generate income for restitution after she finishes her prison sentence is unclear. It remains possible that Holmes could produce an invention valuable enough to restore victims’ losses, but “investors at this point probably assume they’ve lost their money,” Cohen said.
